Uncategorized

This is part 3 of a multipart series for physicians learning to understand the economic reality of value based care. Part one, Don’t be Afraid of Bundled Payments! is here. Part 2, Protecting Income in an Era of Payment reform, is here.

Value based care has gone from dream to reality. Accompanying this transition is a massive transfer of risk from third party payers to providers. We are, in essence, becoming insurers! Physicians have come to accept this new world, but are not in a position to truly understand it. The main reason is that we have never been trained to understand basic concepts in financial risk assessment.

The recent failure of Dartmouth-Hitchcock’s ACO is the best example. “We were cutting costs and saving money and then paying a penalty on top of that,” said Dr. Robert A. Greene, an executive vice president of the Dartmouth-Hitchcock health system. “We would have loved to stay in the federal program, but it was just not sustainable.” In the end, Dartmouth, which was a pioneer in creating the ACO model, improved quality and reduced Medicare spending on hospitalizations, procedures, imaging and testing. Nevertheless, they miscalculated the financial risk of the ACO and had to shut it down.

Why did some of the smartest physicians in the country fail? It may be that we are terrible at understanding and pricing different kinds of risk. For example, in the immediate aftermath of 9/11, the number of air passengers fell while the number of miles driven increased – even though driving is exponentially riskier than flying. This so-called “9/11 Effect,” prompted by a fear of further terrorist attacks and a wish to avoid long waits in airport security lines, had the unintended consequence of creating 2,170 additional traffic fatalities in the three months following the collapse of the World Trade Center. Clearly, travelers did not make their risk calculations are based on objective measures.

For most anesthesiologists, owners of endoscopy anesthesia services, or pain management specialists, this question evokes a strong emotional response. After all, your practice is your life’s work. Your answer is either a resounding “no” or a reluctant “yes”. You might not want to think about it now. But someday it will be time to move on, cut back on your responsibilities, or retire, and you’ll want to sell your shares with the best possible financial outcome.

So, the better question is: When is the best time to sell your anesthesia practice?

Let’s face facts: stuff happens. You lose a contract, reimbursements decrease, a partner leaves, or you become ill. Don’t let circumstances force your hand into selling at a less than optimal time.

You want to make sure the timing is right because:

•The value of your shares fluctuatesdepending on profits, contracts, competition, and more. Furthermore, we discovered that delaying a sale in a hot market will cost your group millions even if you never ever sell.

•You want to sell when buyers are eager. Are there potential buyers out there now who are willing to pay what the practice is worth? Or more? Consider the potential future salary you’ll be giving up. Large companies with insurance company relationships may stand to earn much more than you ever did, and they should be willing to pay you accordingly.

•You deserve to get the most out of your investment.After all, the time and expertise you’ve put into growing your practice are impossible to put a price on.

At AnesthesiaStat, we are dedicated to helping you get the timing right. We have over 15 years of experience keeping a sharp eye of the ups and downs of the anesthesiology market, and how it is affected by Wall Street, medical trends, and demand. What we have discovered is that right now exists a small window of opportunity for certain groups to earn maximum price for their practice, keep most if not all of their current compensation, while potentially paying the partners a 7 figure sum each.

Here is an example of how we helped one of our clients receive the best possible price for the sale of their practice.

We considered the practice’s revenues and contracts, determined the current value, and presented the future value to the Anesthesia Management Company (AMC) that was interested in purchasing the practice:

Our Client’s Current Revenues

Our Client’s Future Revenues with the AMC

Increase

Revenues

$25,046,566

$48,089,407

$23,042,841

Units

932,862

932,862

Percent Private Insurance

59.6%

59.6%

Average Units Collected

$25

$48

$23 per unit more per case

Numbers were multiplied by a factor to comply with Non-Disclosure Agreement

Though the purchaser did not share their contract details with us, we were able to determine that the purchaser’s existing third party payer contracts would double the group’s revenues. Even if nothing else changed, the increased revenues would come in the form of profits for the buyer. That factor made the group very valuable, much more so than their existing $25 million of revenues or EBITDA. That knowledge allowed us to consult with our client to reject the offer and eventually sell at double the price that was originally offered. When the buyer publicized the purchase of the group, they announced an estimated future revenue that was in line with what we had estimated.The reality is that most groups sell for much less than they are worth.

What should you do now?

Remember, this is about timing and knowing when you can maximize your investment. Even if you aren’t considering selling your practice now, you will want to some day. Be prepared: it is critical that you get a free assessment of your group’s current revenues vs. future revenues; we provide that service for free at our contact page:

http://www.anesthesiastat.com/contact-us.php. We will provide you with a more accurate picture of how much your practice is worth — It might be considerably more than you expected. Most importantly, the assessment helps you decide when it’s the best time to sell.

Next month:How To Negotiate The Highest Sale Price For Your Anesthesia Practiceand why a delay will cost you millions even if you never sell your group.

A new market for physician practice acquisition has developed. ASC (Ambulatory Surgical Centers) owned Anesthesia practices and GI Anesthesia groups, which hold long-term contracts with Gastroenterology ASC’s, are now in demand. Larger companies are snapping them up at good prices. It is definitely a seller’s market — for now. You should take advantage of this situation.

Your Contracted Rates are Probably too low

Current reimbursement contracts from insurance companies for patients treated at GI Anesthesia practices tend to be 25-30% less than what larger, dedicated Anesthesia groups can negotiate. This means your practice is at a disadvantage financially. You’re just not close.Large anesthesia groups can make more money than you can from your smaller practice, and they are willing to pay you accordingly.

Financial Pressures Are Increasing

Reimbursement for GI Anesthesia services is going to decrease. For example, Alabama Blue Cross/Blue Shield is considering a reimbursement of only 25% for the use of Propofol.

Compliance in order to receive reasonable reimbursement is also becoming more difficult. The challenges of implementing ICD-10 and demonstrating Meaningful Use are just two examples.

Managing the staffing and benefits for Anesthesia providers can be painful as well. As practicing Gastroenterology becomes more complicated and more costly, many Gastroenterologists find it is tough to properly manage the challenges of their Anesthesia business endeavors.

Why Do Larger Companies Do Better?

Balancing reimbursement and compliance risk/burden is their expertise. More important, they can leverage the earnings (EBITDA) of acquired practices with Wall Street and/or private equity money to finance the acquisition of more groups. Size creates efficiency, savings and benefits for investors. This creates opportunity for GI groups beyond sales to hospitals or other physicians.

In one example, a company purchased a large GI group inGeorgia. They followed this purchase with two smaller ones in March 2015. They believe they have the potential to not only grow revenues via future accretive acquisitions but also through organic growth of the acquired business.

In a more recent transaction (AnesthesiaStat was the consultant), the seller was able to achieve amarket-leading multipleafter careful consideration and skilled negotiation. Medical, business and legal questions added complexity and required care, but AnesthesiaStat managed these issues adeptly.

Make the Deal Yours

AnesthesiaStat can also help you consider other options. For example, a partial sale can help maintain some cash flow and allow you to benefit from better management and “income repair”. Individuals worried about out-of-network charges and balance billing can address these concerns during the negotiation. Anesthesia staff is typically maintained, but new staff can be hired if desired.

Selling a GI Anesthesia practice allows you to cash out now, when the market is favorable, avoiding future risks. The buyer can use its superior management skills to get better reimbursement and reduce anesthesia billing, compliance and collections costs. The key for you is to make sure you receive a price commiserate with your practice’s earning potential. The advice and support of AnesthesiaStat will help you achieve this. More information is available at anesthesiastat.com.

An interesting new market of physician practice acquisition is developing. GI Anesthesia groups which hold long term contracts with Gastroenterology ASC’s as well as ASC owned Anesthesia practices are starting to be purchased by a couple of large companies. The multiples are great and this is definitely a sellers market— for now…….

Why would one do this? Reimbursements are declining and threatening to go down or become bundled. Compliance is becoming more difficult. As practicing your primary field becomes more complicated, are you really still able to properly balance other business endeavors? This is why GI Anesthesia reimbursement by gastroenterologists tends to be 25-30% less than what dedicated providers can do.

What is the advantage for the acquirer? Balancing reimbursement and compliance risk/burden is their expertise. CRH, for example, made a recent purchase of Gastroenterology Anesthesia Associates, LLC with a maximum total purchase price of maximum total purchase price assuming achievement of all performance measures is US$73.2 million. They followed this purchase with two smaller ones in March 2015. As CRH States in the press release, “CRH believes this new platform has the potential to not only grow revenues via future accretive acquisitions but also through organic growth of the acquired business.”

Considering a purchase of your GI Anesthesia practice? Its gives you the ability to cash out now and avoid future risks. It allows you to find a stable partner for Anesthesia service management so that you can focus on growing your GI practice. The acquirer can use its superior management skills to get better reimbursement and reduce anesthesia billing, compliance and collections costs. A practice with growing volumes may even be given a premium valuation with the right negotiating support. A recent group, for example, was offered a multiple of 6 based on growing volumes and practice improvements! That’s why you need the advice and support of AnesthesiaStat Consulting to help. Visit us at anesthesiastat.com for more information or email me at info@anesthesiastat.com.

At AnesthesiaStat, we have been following the Anesthesia Group buyout frenzy for some time now. The big Practice Management Companies(PMC’s) and Investment Banker advisors have seen a very active marketplace. What is left? The market for the largest “platform groups” is almost done. Most major groups have been bought or will soon be. Now, the next stage is well underway. In this phase, small and medium sized groups will be bought or become employees.

Remaining groups interested in a sale are in a great position to attract good terms…..but for a limited time. We even have reports that industry consolidation saturation in fields such as neonatology and pediatrics is leading to greater demand for anesthesia groups. Now is the key time to make definitive investments to improve the quality and show the value of your practice. The right decisions can make a tremendous impact on how much control your have in your fate. In the worst case, poorly positioned groups will lose their contracts with hospitals and may lose their jobs.

From the investor point of view, two factors are important: size and quality. First, we need to define size:

Small 0-20 providers (some say up to 50)

Medium 20-100 providers (some say 150)

Large 100 and above

Mednax and Phymed (Excellaire) have been active in acquiring smaller groups lately. NAPA and Sheridan continue to excel at buying out smaller groups as well as taking over contracts in the RFP process.

Market Update

The August IPO of Envision Healthcare, parent of EmCare, was hot. Valuations of its market peers continue to rise in sympathy. The IPO debuted at $23/share and as of the market close on November 14, 2013, its shares were trading at $28.75. EVHC is currently trading at 18x EBITDA, which is a premium to its next largest competitor, Team Health Holdings (which is currently trading at 14.6x), while Mednax is trading at 11.5x.

Growth may favor companies with diversified offerings of Hospital based physicians. It is still left to determine what the best mix is of radiology, Pathology, anesthesiology, intensive care, hospitalists, and emergency medicine. The Acccountable Care Act (ACA) creates unfavorable reimbursement dynamics and value based payment risks, but also creates opportunities for scale (Better negotiating with hospitals and insurers, better terms for bundled payments and value based reimbursement). There will clearly be execution risk on the part of the company. With this backdrop, there will continue to be interest in the Anesthesia groups.

The Alphabet Soup of the Buyout: EBITDA and Multiples

We may feel we learned a second language in Medical School. Investment banking language can be equally intimidating. We will focus here on two concepts.

The numbers you need to evaluate a buyout offer are EBITA/EBITDA and the market multiple. Earnings before interest, taxes, depreciation and amortization, or “EBITDA,” is the key figure you need to know for your group. Taken from Wikipedia, It measures the operating performance of your practice. It evaluates this without having to consider other factors such as financing costs (interest), accounting practices (depreciation and amortization) or tax tables. Calculating EBITDA is usually a simple process for bankers and advisors. It’s impossible for us….

The second number, the market multiple, is more vague. Those of you familiar with the stock market will understand more easily. Essentially, it is the additional price investors are willing to pay for the earnings and potential growth of your business. Higher quality businesses command higher multiples. Anesthesia multiples have been higher than other medical fields and have varied between 5 up to over 8. The difference translates into a lot of money! In contrast, the multiples for Emergency Medicine are 5-6x, 4-5x for a cardiology group, 3-4x for urology and 4-6x for a well managed primary care group.

Groups interested in a sale need to maximize both their EBITDA as well as their Multiple. It really boils down to maximizing quality. “Quality” for the purpose of this article actually has two components. The first is “Investment Quality”. The second is health care delivery quality. Both are equally important.

The most favorable groups are large, diversified by age and provider, have good relationships with hospitals and are invested in their future. What if you have not done all these things? That’s where good advisors are needed to help you candidly and efficiently position your group for the future. Most important, they can help you overcome some of the sensitive and political factors that trip up many groups.

How Does it Work?

Basically, the EBITDA multiplied by the Multiple leads to the price of the buyout. The big numbers can be enticing. What is the trade off? In return, the group is switched to a salary which is 20-30% less over the contract term of around 7 years. The PMC will own the hospital contract and existing members will have a non-compete clause. After the term, there may be an extension or a renegotiation. The PMC will look to recoup most of the upfront cost through salary reduction. The rest will be made up through operational efficiencies and higher blended unit reimbursements. The details vary, but the general terms here are universal.

Choosing the right investment banker is critical. I’ve had the opportunity to speak to several. I’ve heard feedback about many others. They love to speak about big numbers, experience and results. At times, however, their arrogance and “take it or leave it” approach can create acrimony among group members. In the worst case scenario, anger spreads creating discord within the hospital. Be very careful!

Final Word

So……where does that leave us? More than likely, you need help and a gameplan. The truth is, the window is closing on getting the best offer. Expected trends to increase volumes discussed in previous articles will be tempered with the push towards value based purchasing and decreased utilization. Its time to get the best game plan to maximize your EBITA and Multiple. Position your group to peak in value at the time of sale!

Hospital administrators are caught in a catch 22. Budgets are decreasing for Health Information Technology, yet demands are increasing. The government, third party payers and patients are demanding I.T. systems and Health Technology with increasing complexity and diversity to meet the needs of meaningful use, quality and lower readmissions. At the same time, reimbursement cuts, possible decreased admissions and the added cost of readmissions will constrain budgets. These factors, explained in recent surveys(1), show that everyone is asked to do more with less. Luckily, there are ways to do this.

Health care, particularly in Information Technology, is not an efficient marketplace. The space is dominated by a couple of big companies. Consultants usually have strong financial relationshipswith these big companies. This perpetuates an environment without price transparency, complicated pricing and contracts, and unnecessarily high fees. There is an easy way to break the cycle! This approach has saved small and large systems 30-50% of their operating budgets within one year to realize savings of millions of dollars.

Medical Technology Consultants (MTC) are independent experts at Focused Asset Management. Over the past 4 years, their system was used to successfully evaluate over 100 hospitals,everytime showing that the hospitals were not realizing profits because of inefficient contracts and operations. Their system usesspecialized analytics to rapidly evaluate equipment needs, update cycles and contracts.

Here are the key points:

A typical 300 bed hospital will realize about$2 million in savings

A system in Texas was recently able to make an extra$5400profit per hospital bed using this system.

This kind of rapid evaluation and assessment process is not easy. The professionals at MTC worked for a growing major hospital corporation that buys underperforming hospitals. When they discovered significant potential profits, the corporation purchased the hospital and immediately reduced costs. Of course, a hospital purchase is no longer the goal. It is to provide incredible savings to CEO’s and CFO’s who use the service.

The process is relatively simple. They simply need basic information like an equipment list. Using exclusive analytics software, they can evaluate the true cost of your technology, services and maintenance.

Focused Asset Management by MTC can provide the solution you need to:

1. Decrease Capital Equipment costs- a systematic approach to all IT spending is not only possible but can be done efficiently.
a. Reevaluate Biomedical Services Agreements
b. Are you paying more than the industry standard fees for service?
c. Are you getting appropriate service for your fees?
d. Manage equipment transfers within IDN’s
e. Reevaluate your in house IT department- many services can be outsourced at lower cost through CQI initiatives and monitoring.

2. Negotiate better prices- Your “discounts” may actually be costing you!
a. Find better prices for new equipment
b. Find ways to extend the life of your existing technology
c. Invest in used or Demo equipment to save money

3. Get More out of your equipment
a. We can manage and directly install HL7 between Clinical equipment, Patient Monitoring equipment and patient data storage system. Integrate data and reduce Length of Stay.
b. Philips/ HP monitoring is a specialty

4. PACS System installation and maintenance

5. Compliance- Violations will cost you more than money—Your reputation is on the line.
a. Are you within State and Federal guidelines for your services?
b. Are you ready for a visit from your state, JCAHO or Medicare?
c. Are you ready to show and prove the value of your services in a pay-for-performance setting?
d. Are your IT systems ready to reduce readmissions and increase the long-term value of your patient care?
(1) http://www.healthcareitnews.com/news/budgets-dip-health-it-spending-grows

In our first article we focused on the basics of anesthesia practice management companies. In this article we’re going to evaluate the specific topic of private equity groups and anesthesia. We will discuss the basics of private equity and their desire to purchase Anesthesia groups. Finally, we will discuss the steps you should take to either pursue a sale of your group or avoid one.

A quick look at the MGMA data over the past 10 years reveals a staggering trend. Independent private anesthesia groups are quickly being replaced by Anesthesia Management Corporations and Hospital Employed models. What is fueling the rapid change are decreasing hospital profits, decreasing insurance reimbursements, hospital consolidation, and the millions of dollars private equity firms are pouring into purchasing anesthesia groups. Partnership tracks are becoming increasingly tenuous as the survival of the old anesthesia models wane. Your group does not have to succumb to this trend. You have all the control in your hands to save your contract, and I want to show you how.

Anesthesiologists have a lot of questions regarding Anesthesia Practice Management Companies (PMC’s). Once a small portion of practice, these corporations represent a rapidly growing percentage of anesthesia care in the United States. It is estimated that several hundred million dollars will be spent this year to acquire anesthesia groups and gain market share. There is an incredible amount of money flowing from capital markets and private equity into Anesthesia. From a purely economic perspective, will this lead to the commoditization of Anesthesia Care and/or an improvement in the quality and availability of care? This article (first of a series) will focus on the market forces leading to the growth of Anesthesia PMC’s.

A Managers Guide to Quality Improvement and Cost Control

The current environment of value based health care has many administrators scratching their heads about perioperative services. The environment is becoming more chaotic as different medical associations and private/governmental healthcare organizations weigh in with best practice guidelines. Trying to weigh the confusing amounts of information can be daunting. You still have one set of providers who have the skills to evaluate the entire range of perioperative services: Anesthesiologists.

Posts navigation

About the Blog

This blog exists to provide our clients the decisive advantage when contemplating the sale of their practice, improving practice efficiency, and confronting the changing landscape of how we provide anesthesia/pain services.